Delta Air Lines Inc. (DAL) reported its first quarterly loss in many years as the U.S. airline is parking more than 650 aircraft after coronavirus-related restrictions brought travel demand to a halt.
Delta ended the first quarter with a $534 million net loss, or a $0.84 loss per share, after a $730 million profit a year earlier. Revenues dropped 18% to $8.59 billion in the first three months of the year, as the U.S. carrier burnt $100 million per day at the end of March.
Shares advanced 3.6% to $23.94 in pre-market U.S. trading before retreating 0.7% to $22.93 in morning trading.
Looking ahead, the airline expects the adverse coronavirus impact to intensify in the June 2020 quarter.
“Government travel restrictions and stay-at-home orders have been effective in slowing the spread of the virus, but have also severely impacted near term demand for air travel, reducing our expected June quarter revenues by 90%, compared to a year ago” said Ed Bastian, Delta’s chief executive officer.
To combat the bleak outlook, Delta projects total expenses in the June quarter to be slashed by about 50%, or $5 billion, year-on-year due to reduced capacity, lower fuel and cost initiatives, including parking 50% of its fleet, implementing a company-wide hiring freeze and offering voluntary leave options, while 37,000 employees are taking short-term unpaid leave.
“With the significant impact of COVID-19 on Delta’s revenue, we were burning $100 million per day at the end of March. We expect that cash burn to moderate to approximately $50 million per day by the end of the June quarter,” said Paul Jacobson, Delta’s chief financial officer. “The decade of work we put into the balance sheet to lower debt and build unencumbered assets has been critical to our success in raising capital and we expect to end the June quarter with approximately $10 billion in liquidity.”
At the end of the March quarter, Delta had $6 billion in available liquidity, the company said.
In addition, the airline said government relief for payroll support will amount to $.5.4 billion, comprised of $3.8 billion of direct relief and a $1.6 billion low-interest, unsecured 10-year loan. The airline has already received $2.7 billion of these funds and will receive the remainder over the next three months. In return, the U.S. Treasury will get warrants to purchase over 6.5 million shares of Delta common stock at a price of $24.39 with a 5-year maturity.
Since March, Delta has raised $5.4 billion of capital, including a $3 billion secured term loan, $1.2 billion in aircraft sale leasebacks, and $150 million funding in private aircraft mortgages. The airline drew down $3 billion under its existing revolving credit facilities and cut planned capital expenditures by more than $3 billion.
Wall Street analysts’ recommendations on the stock show a cautiously bullish picture with 7 Buy ratings and 4 Hold ratings adding up to a Moderate Buy consensus rating. The $44.56 average price target implies investors may come home with a return of 95%, should the target be met in the next 12 months. (See Delta stock analysis on TipRanks)
“While we are planning for a modest demand recovery beginning in the September 2020 quarter, the exact timing and pace of the recovery is uncertain given the significant impact of the pandemic on the overall U.S. and global economy,” Delta said.
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